Archive for the ‘FCPA Trials’ Category

The question was recently asked: ”will there ever be a classic treatise on the FCPA?”

According to Webster’s, a treatise is a book, article, etc., that discusses a subject carefully and thoroughly.

With that definition in mind, I invite you to consider my new book “The Foreign Corrupt Practices Act in a New Era.” Inside you will find:

A thorough telling of the story of the FCPA told largely through original voices of actual participants who shaped the pioneering law;

Foundational knowledge (such as DOJ and SEC policy and resolution vehicles and the realities of the global marketplace) that best enhance understanding and comprehension of specific FCPA topics;

A comprehensive analysis of the FCPA’s anti-bribery provisions and for each element, exception or affirmative defense discussion of all legal sources of authority (including all relevant substantive FCPA judicial decisions) as well as non-legal sources of information (including discussion of over 70 FCPA enforcement actions);

Discussion of other legal issues also relevant to FCPA enforcement;

A comprehensive analysis of the FCPA’s books and records and internal controls provisions including legal authority as well as non-legal sources of information;

Analysis of the typical origins of FCPA scrutiny and enforcement;

Discussion of FCPA settlement amounts, how they are calculated, and analysis of legal and policy issues relevant to settlement amounts;

Discussion of FCPA sentencing issues, how sentences are calculated, and an analysis of legal and policy issues relevant to sentencing decisions;

An extended discussion and analysis of an often overlooked topics, “FCPA Ripples,” and how settlement amounts in an actual FCPA enforcement action are often only a relatively minor component of the overall financial consequences that can result from FCPA scrutiny or enforcement;

An exploration of practical and provocative reasons for the general increase in FCPA enforcement during this new era including a discussion of FCPA Inc. and the business of bribery;

Identification and discussion of FCPA compliance best practices and benchmarking metrics; and

An in-depth discussion and analysis of FCPA reform designed to ensure that the FCPA is best achieving the original goals of the law and that FCPA enforcement is transparent and consistent with rule of law principles.

Whether the above topics highlighted and explored in “The FCPA in a New Era” make it a classic treatise, well, I invite you to come to your own conclusion. At the very least, you will have to agree that the cover of the book is more inviting than a typical treatise.

While I am certainly not going to ascribe labels to my own work, I am pleased to share what others have said about “The FCPA In a New Era.”

Michael Mukasey, former U.S. Attorney General

“Professor Koehler has brought to this volume the clear-eyed perspective that has made his FCPA Professor website the most authoritative source for those seeking to understand and apply the FCPA. This is a uniquely useful book, laying out systematically the history and rationale of the FCPA, as well as its evolution into a structure governed as much by lore as by law. It will be valuable both to those who counsel international corporations, whether in connection with immediate crises or long-term strategies; and to those who contemplate what the FCPA has become, and how it can be improved.”

Professor Daniel Chow, The Ohio State University Moritz College of Law

“This is the single most comprehensive academic treatment of the Foreign Corrupt Practices available. Professor Koehler’s book will become the authoritative standard for the field. The book not only treats the history of the FCPA, but analyzes the statute’s elements in detail, discusses current cases, and makes proposals for reforms where the current law is deficient. The book is written in a clear, accessible style and I will use it often as a resource for my own scholarly work.”

Richard Alderman, former Director of the UK Serious Fraud Office

“An excellent and thought-provoking book by a great expert. Backed up by rigorous analysis of cases, Professor Koehler constantly challenges those involved in anti-corruption work by asking the question ‘why?’ He puts forward many constructive and well-argued suggestions for improvements that need to be considered. I have learned a lot from Professor Koehler over the years and I can thoroughly recommend this book.”

Thomas Fox, FCPA Compliance and Ethics Blog and FCPA Practitioner

“The Foreign Corrupt Practices Act in a New Era” should become one of the standard texts for any FCPA compliance practitioner, law student studying the FCPA or anyone else interested in anti-bribery and anti-corruption. It should be on your FCPA library bookshelf.”

Barry Vitou, thebriberyact.com and Compliance Practitioner

“If you only read one book on the US FCPA, read this one. [...] Mike Koehler’s new book is probably the best book we’ve read about the FCPA. [...] For those wanting a pair of ‘FCPA goggles’ no book is, in our opinion, better.”

To order a hard copy of the book, see here and here; to order an e-copy of the book, see here and here.

For media coverage of the book including Q&A’s, see here from Corporate Counsel, here from Global Investigations Review, and here from Corporate Counsel Weekly.

*****

Looking for even more information and analysis of the FCPA and FCPA enforcement?

I invite you to all also consider the following year in review articles. Granted the below articles are not found between two covers, but you will find approximately 500 pages of FCPA statistics, trends and analysis over time.

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

The 1998 Foreign Corrupt Practices Act enforcement action against Saybolt Inc., Saybolt North America Inc. and related individuals had many interesting wrinkles: a unique origin; a rare FCPA trial; a fugitive still living openly in his native land; and case law in a related civil claim.

As to the unique origin, Saybolt Inc. was a U.S. company whose primary business was conducting quantitative and qualitative testing of bulk commodities, such as oil, gasoline, and other petrochemicals, as well as grains, vegetable oils and other commodities. The Environmental Protection Agency, Criminal Investigation Division (“EPA-CID”) was investigating the company for allegedly submitting false statements to the EPA about the oxygen content of reformulated gasoline blended in accordance with the requirements of the Clean Air Act. The investigation was initiated by reports of data falsification at Saybolt’s Massachusetts facility.

During the course of the investigation EPA-CID interviewed Steven Dunlop (the general manager for Latin American operations for Saybolt) who provided the following information.

During a trip to Panama in 1994, Dunlop was advised of new business opportunities that were being offered to Saybolt Panama through the Panamanian Ministry of Commerce and Industries. Specifically, the DOJ’s criminal complaint alleged that Hugo Tovar (the General Director of the Hydrocarbon Directorate, a division of the Ministry of Commerce and Industries) and Audo Escudero (the Sub-Director of the Hydrocarbon Directorate), offered to Saybolt Panama an opportunity to: (1) receive a substantial reduction in Saybolt Panama’s tax payments to the government of Panama; (2) obtain lucrative new contracts from the government of Panama; and (3) secure a more permanent facility for Saybolt Panama’s operations on highly coveted land near the Panama Canal. According to the criminal complaint, this parcel of land was coveted because Saybolt Panama “only had a tenuous legal claim on its existing facility” and as a result its operations were continually at risk.

The complaint details various communications between Dunlop and David Mead (the President and CEO of Saybolt) in which Dunlop informed Mead of a $50,000 “fee” that would be needed to accomplish the above opportunities.

The complaint details a 1995 board of directors meeting at Saybolt during which discussion concerned the “$50,000 payoff demanded by the Panamanian officials with whom Saybolt was negotiating. According to the complaint, present at this meeting were Board members Frerik Pluimers and Philippe Schreiber as well as Mead and Saybolt’s Chief Financial Officer Robert Petoia. According to the complaint, Dunlop received instructions from Mead that he was to “take the necessary steps to ensure that the $50,000 was paid to the Panamanian officials in order to secure the deal” and that Schreiber was to be his primary contact on all issues concerning the Panamanian transaction.

According to the complaint, “in the minutes leading up to the time he was scheduled to leave his house for the airport” to travel to Panama,” Dunlop had a telephone conversation with Schreiber who advised him “that the action [he] was about to take would constitute a violation of the FCPA.”

According to the complaint, while in Panama Dunlop “learned that the Saybolt funds needed to make” the payment had not yet been received and that Dunlop then tried to contact Mead. According to the complaint, Mead sent Dunlop an e-mail which stated: “Per telecon undersigned and capo grande Holanda the back-up software can be supplied from the Netherlands. As previously agreed, you to detail directly to NL attn FP.” According to the complaint, “capo grande Holanda” was a reference to Pluimers (the President of the Dutch holding company that controlled Saybolt, Inc.” and the “back-up software” was a reference to the $50,000 payment.”

The complaint alleged that the funds never arrived in Panama and that Dunlop was receiving pressure from the Panamanian officials “to make the $50,000 payment prior to the upcoming Christmas holidays.” According to the complaint, Mead told Dunlop on a telephone call to make the $50,000 payment using funds that were in the operating account of Saybolt Panama.

According to the complaint, the $50,000 in cash was obtained by laundering a check through a local construction company and that a “sack full of currency” was handed over to Escudero at a bar in Panama City by the individual who was serving as Saybolt Panama’s liaison with Escudero. Further, according to the complaint, “shortly after this payment was made, the Ministry of Commerce and Industries and other necessary government agencies acted favorably on Saybolt’s proposal.”

In April 1998, the DOJ filed this indictment against Mead (a citizen of the U.K. and resident of the U.S. and Pluimers (a national and resident of the Netherlands) based on the above conduct. The indictment charged Mead and Pluimers with conspiracy to violate the FCPA’s anti-bribery provisions and the Travel Act, two substantive violations of the FCPA, and two substantive violations of the Travel Act.

According to the indictment, the purposes and objectives of the conspiracy were:

To obtain contracts for Saybolt de Panama and its affiliates to perform import control and inventory inspections for the Ministry of Hydrocarbons, and the Ministry of Commerce and Industries, both departments of the Government of the Republic of Panama;

To obtain and to expedite tax benefits for Saybolt de Panama and its affiliates from the Government of the Republic of Panama, including exemptions from import taxes on materials and equipment and reductions in annual profit taxes;

To obtain from an agency of the Government of the Republic of Panama a secure and commercially attractive operating location for an inspection facility in Panama; and

To “lock out” Saybolt’s competitors by retaining possession and control of Saybolt de Panama’s existing location in Panama.

In September 1998, the DOJ filed this superseding indictment substantially similar to the first and including the same charges.

Mead moved to strike the indictment of allegations that he violated the FCPA and for dismissal of the indictment for failure to state an offense under the Travel Act, and for a Bill of Particulars. In a one page order, U.S. District Court Judge Ann Thompson denied the motions. Dunlop was given full immunity as was the American attorney present at the board meeting and involved in several conversations with Pluimers, Mead, and Dunlop concerning the alleged payments.

Mead argued that the FCPA only prohibited payments to assist a domestic concern in obtaining and retaining business” and he used Saybolt’s rather complex corporate structure to argue that the business sought to be obtained or retained was for a different Saybolt entity, not a domestic concern. In his motion, Mead stated “because the government ignores the corporate legal structure and does violence to the FCPA by attempting to end-run congressional policy, the Court must justifiably refuse.” Elsewhere, the motion stated:

“Whether the government labels foreign corporations as ‘agents of a domestic concern’ or members of an ‘unincorporated organization,’ the government still may not manipulate the Act’s broad language to end-run this congressional policy (of deliberately excluding both foreign subsidiaries and non-subsidiary foreign corporations from FCPA liability).”

The motion also argued that the indictment was devoid of any allegation that Mead acted “willfully” (i.e. with the specific intent to violate the law) because he followed the legal advice of counsel in making the alleged payments.

In response, the DOJ stated that the indictment “describes in detail how Mead – himself a U.S. resident, and also the President of one U.S. corporation (Saybolt Inc.), Executive Vice-President of a second U.S. corporation (Saybolt North America Inc.), and Chief Executive Officer of an unincorporated association (Saybolt Western Hemisphere) – and others decided to send a Saybolt Inc. employee to Panama City, Panama, to oversee the payment of a $50,000 bride, which they believed would be provided to high level government officials, in exchange for favorable treatment of Saybolt’s business interests in Panama. The Indictment charges that Mead gave the order to go forward with the bribe and it details the contents of the e-mail message that Mead sent from his office in New Jersey to the Saybolt employee in Panama City.”

At trial, Mead argued that the Government failed to meet its burden of proof and that he acted in good faith belief that the payment to the Panamanian officials was lawful. The relevant jury instructions stated as follows.

“If the evidence shows you that the defendant actually believed that the transaction was legal, he cannot be convicted. Nor can he be convicted for being stupid or negligent or mistaken. More is required than that. But a defendant’s knowledge of a fact may be inferred from “willful blindness” to the knowledge or information indicating there was a high probability that there was something forbidden or illegal about the contemplated transaction and payment. It is the jury’s function to determine whether or not the defendant deliberately closed his eyes to the inferences and the conclusions to be drawn from the evidence here.”

According to this docket sheet, Mead’s trial occurred in October 1998 and he was found guilty of all charges. According to the docket, Mead was sentenced to four months imprisonment, to be followed by four months of home confinement, to be followed by three years of supervised release. According to the docket, he was also ordered to pay a $20,000 criminal fine. After sentencing, US Attorney Donald Stern of Boston, stated: ”This sentence puts American executives on notice there will be a price to pay, far more than the monetary cost of the birbe, when they buy off foreign officials.” For additional reading on Mead’s case, see this transcript of an in-depth CNN story about Mead that aired in 1999.

What about Pluimers?

As indicated by this docket sheet, there has been no substantive activity in the case since 1999 and Pluimers remains a fugitive – albeit living openly in his native Netherlands. According to this 2011 New York Times article citing a Wikileaks cable, “Pluimers simply has too much influence with high-ranking Dutch officials to be handed over to U.S. authorities.”

What about Saybolt?

In August 1998, the DOJ the filed two separate criminal informations against Saybolt Inc. and its parent corporation Saybolt North American Inc. The first information charged Saybolt with conspiracy and wire fraud related to the company’s “two year conspiracy to submit false statements to the EPA about results of lab analyses. The second information charged Saybolt and Saybolt North America with conspiracy to violate the FCPA and one substantive charge of violating the FCPA.

As noted in this plea agreement, Saybolt agreed to plead guilty to all charges in the informations and agreed to pay a total fine of $4.9 million allocated as follows: $3.4 million for the data falsification violations and $1.5 million for the FCPA violation. Saybolt also agreed to a five year term of probation.

The conduct at issue in the Saybolt and related enforcement actions also spawned a related civil malpractice action alleging erroneous legal advice by counsel regarding the above-described payments to Panamanian officials. In Stichting v. Schreiber, 327 F.3d 173 (2d Cir. 2003), the Second Circuit analyzed whether a company, in pleading guilty to FCPA anti-bribery violations, acknowledged acting with intent thus undermining its claims that the erroneous legal advice was the basis for its legal exposure.

The court stated:

“Knowledge by a defendant that it is violating the FCPA – that it is committing all the elements of an FCPA violation – is not itself an element of the FCPA crime. Federal statutes in which the defendant’s knowledge that he or she is violating the statute is an element of the violation are rare; the FCPA is plainly not such a statute.”

The court also stated concerning “corruptly” in the FCPA:

“It signifies, in addition to the element of ‘general intent’ present in most criminal statutes, a bad or wrongful purpose and an intent to influence a foreign official to misuse his official position. But there is nothing in that word or anything else in the FCPA that indicates that the government must establish that the defendant in fact knew that his conduct violated the FCPA to be guilty of such a violation.”

To my knowledge, there has never been a FCPA civil trial in which the SEC has been put to its burden of proof.

The SEC has otherwise been put to its burden of proof in FCPA enforcement actions, although a scant four times in the FCPA’s 37 year history.

This post highlights those four instances (including two matters that remain pending and which may ultimately result in a FCPA civil trial).

Eric Mattson and James Harris

As highlighted in this previous post, in 2002 a judge in S.D. of Texas dismissed an SEC complaint against Eric Mattson and James Harris. The enforcement action involved alleged goodwill payments to an Indonesian tax official for a reduction in a tax assessment. The SEC claimed that the FCPA’s unambiguous language plainly encompassed the goodwill payment and the issue before the Court was whether the plain language of the FCPA prohibited goodwill payments for the purpose of reducing a tax assessment.

When Mattson and Harris was decided, the S.D. of Texas in U.S. v. Kay case had already dismissed that case finding that the plain language of the FCPA does not prohibit goodwill payments to foreign government officials to reduce a tax obligation. The SEC attempted to distinguish the trial court’s Kay ruling by arguing that in the civil enforcement context, the Court should interpret the FCPA’s language more liberally than in criminal cases. The Court rejected the SEC’s arguments and followed the trial court’s analysis in Kay that the payments at issue to the Indonesian tax official did not violate the FCPA because it did not help Mattson’s and Harris’s employer (Baker Hughes) “obtain or retain business.” See here for the court’s Memorandum and Order.

The SEC’s FCPA website contain no mention of the ultimate outcome of the charges against Mattson and Harris.

Herbert Steffen

As highlighted in this previous post, in 2013 a judge in the S.D. of New York dismissed an SEC complaint against Herbert Steffen, a former Siemens executive, based on alleged improper conduct in Argentina. In dismissing the case against the German national, the judge concluded, as an initial threshold matter, that personal jurisdiction over Steffen exceeded the limits of due process. The judge stated, in pertinent part, as follows.

“If this Court were to hold that Steffen’s support for the bribery scheme satisfied the minimum contacts analysis, even though he neither authorized the bribe, nor directed the cover up, much less played any role in the falsified filings, minimum contacts would be boundless. [...] [U]nder the SEC’s theory, every participant in illegal action taken by a foreign company subject to U.S. securities laws would be subject to the jurisdiction of U.S. courts no matter how attenuated their connection with the falsified financial statements. This would be akin to a tort-like foreseeability requirement, which has long been held to be insufficient.”

In connection with the same core enforcement action, the SEC also voluntarily dismissed charges against Carlos Sergi.

The SEC’s FCPA website contain no mention of the ultimate outcome of the charges against Steffen and Sergi.

Elek Straub, Andras Balogh and Tamas Morvai

As highlighted in this previous post, in February 2013 a judge in the S.D. of New York denied the defendants’ motion to dismiss the SEC’s charges in an enforcement action alleging a bribery scheme in Macedonia.

In sum, the foreign national defendants, former executives of Magyar Telekom, moved to dismiss the SEC’s complaint on three principal grounds: (1) the court lacked personal jurisdiction over them; (2) the SEC’s claims were time-barred; and (3) the complaint failed to state claims for certain of its causes of action.

The two most important aspects of the judge’s decision concerned statute of limitations and the jurisdictional element of an FCPA anti-bribery violation.

As to statute of limitations, the judge exhibited judicial restraint in concluding that the plain language of the applicable statute of limitations compelled the conclusion that the limitations period did not begin to run because the foreign national defendants were not physically present in the U.S.

As to the jurisdictional element of an FCPA anti-bribery violation, the judge found the jurisdictional element of 78dd-1 (use of the “mails or any means or instrumentality of interstate commerce”) to be ambiguous and he thus consulted legislative history. In reviewing the legislative history, the judge concluded that the corrupt intent element of the FCPA did not apply to the jurisdictional component of the FCPA. Accordingly, the judge concluded that e-mails routed through and/or stored on network servers located within the U.S. are sufficient to plead the jurisdictional element of an FCPA anti-bribery violation even if the defendant did not personally know where his e-mails would be routed and/or stored.

A trial date has not been set in this case. The current discovery deadline is May 2015.

Mark Jackson and James Ruehlen

As highlighted in this previous post, in December 2012 a judge in S.D. of Texas granted – in an SEC FCPA enforcement action involving alleged conduct in Nigeria – Mark Jackson and James Ruehlen’s motion to dismiss the SEC’s claims that sought monetary damages while denying the motion to dismiss as to claims seeking injunctive relief. Even though the court granted the motion as to SEC monetary damage claims, the dismissal was without prejudice meaning that the SEC was allowed to file an amended complaint. As noted in this prior post, that is indeed what happened next, and as noted here a second round of briefing began anew.

As noted in this previous post, in the Defendant’s renewed motion to dismiss they argued that the SEC could not rely on the fraudulent concealment or continuing violations doctrine to extend the limitations period to cover certain claims. A week later the Supreme Court issued its unanimous decision in SEC v. Gabelli (see here for the prior post) and soon thereafter the Defendants filed a notice of supplemental authority with the court arguing that Gabelli “bolstered” their position. On the same day the SEC’s opposition brief was due, the parties jointly notified the court “that in lieu of opposing the [motion to dismiss] the SEC intends to file a Second Amended Complaint.” The filing noted that the then proposed Second Amended Complaint “moots the relief sought in the [the motion to dismiss] because it clarifies that, among the violations alleged, the SEC seeks civil penalties … only to the extent such violations accrued on or before [a certain date]. In short, after being put to its initial burden of proof, the SEC’s case against Jackson and Ruehlen remains a shell of its former self.

The SEC’s case against Jackson and Ruehlen is currently scheduled for trial to begin on July 9, 2014.

As previously highlighted, last week the DOJ formally announced a criminal indictment against Joseph Sigelman charging the former co-CEO of PetroTiger “with conspiracy to violate the FCPA and to commit wire fraud, conspiracy to launder money, and substantive FCPA and money laundering violations.” This enforcement action – via a criminal complaint – was initially announced in January 2014 (see here).

This Wall Street Journal Risk & Compliance Journal post suggests that Sigelman will put the DOJ to its burden of proof at trial.

That alone makes the Sigelman action unique as few individual FCPA defendants are willing to “test their innocence” (see here for a prior post). Indeed, Sigelman’s co-defendants Knut Hammarskjold and Gregory Weisman have pleaded guilty.

The Sigelman action will also be interesting to follow as the FCPA charges, and no doubt other charges linked thereto, are premised on the enforcement theory that employees of alleged state-owned or state-controlled entities are “foreign officials” under the FCPA. Specifically, the Sigelman action alleges that Ecopetrol is “the state-owned and state-controlled petroleum company in Colombia.”

The most recent relevant jury instruction occurred in the so-called Carson enforcement action in which Judge James Selna (C.D. Cal.) issued the following “knowledge of status of foreign official” instruction (see here).

[.....]

“(4) The defendant offered, paid, promised to pay, or authorized the payment of money, or offered, gave, promised to give, or authorized the giving of anything of value to a foreign official;

(5) The payment or gift at issue in element 4 was to (a) a person the defendant knew or believed was a foreign official or (b) any person and the defendant knew that all or a portion of such money or thing of value would be offered, given, or promised (directly or indirectly) to a person the defendant knew or believed to be a foreign official. Belief that an individual was a foreign official does not satisfy this element if the individual was not in fact a foreign official.

(6) The payment or gift at issue was intended for at least one of four purposes: a. To influence any act or decision of a foreign official in his or her official capacity; b. To induce a foreign official to do or omit to do any act in violation of that official’s lawful duty; c. To secure any improper advantage; or d. To induce a foreign official to use his or her influence with a foreign government or department, agency, or instrumentality thereof to affect or influence any act or decision of such government, department, agency, or instrumentality.”

Very soon after this pro-defendant jury instruction in the Carson enforcement action, the DOJ offered the defendants lenient plea deals which they accepted thus avoiding a trial.

As readers likely know, the SOE “foreign official” theory is currently on appeal to the 11th Circuit, the first instance in FCPA history in which an appellate court has a chance to directly address the issue. (See here).

The remainder of this post summarizes the six most recent instances in which the DOJ has been put to its burden of proof in an FCPA trial.

Africa Sting

In January 2010, the DOJ announced criminal charges against 22 executives and employees of companies in the military and law enforcement products industry for engaging in a scheme to pay bribes to the minister of defense of an African country. However, there was no actual involvement from any minister of defense, rather it was a manufactured sting operation. Given the number of defendants, four separate trials were scheduled.

The first Africa Sting trial started in May 2011 and involved four defendants. At the close of the DOJ’s case, Judge Richard Leon dismissed a substantive FCPA charge against one defendant (Pankesh Patel), dismissed another substantive FCPA charge against another defendant (Lee Tolleson) and dismissed the money laundering count against all defendants (Patel, Tolleson, Andrew Bigelow, and John Weir). In July 2011, Judge Leon declared a mistrial as to all remaining counts against all defendants.

The second Africa Sting trial began in September 2011. At the close of the DOJ’s case, Judge Leon dismissed the conspiracy charge against all defendants (John Mushriqui, Jeana Mushriqui, Patrick Caldwell, Stephen Giordanella, John Godsey, and Mark Morales). Because Giordanella faced only that conspiracy charge, he was exonerated. The trial proceeded, the charges went to the jury, the jury deliberated, and in January 2012, the jury found two defendants (Caldwell and Godsey) not guilty. The jury hung as to the remaining defendants, and once again Judge Leon declared a mistrial as to all remaining counts against the remaining defendants.

Shortly after conclusion of the second trial, the jury foreman published this guest post on FCPA Professor and shortly thereafter the DOJ moved to dismiss with prejudice the criminal charges against all of the remaining defendants including those initially charged but not yet tried (Helmie Ashiblie, Yochanan Cohen, Amaro Goncalves, Saul Mishkin, David Painter, Lee Wares, Ofer Paz, Israel Weisler and Michael Sacks). The next day, Judge Leon granted the motion to dismiss and stated (see here) “this appears to be the end of a long and sad chapter in the annals of white collar criminal enforcement.”

John O’Shea

In November 2009, John O’Shea was charged with FCPA and related offenses for allegedly making improper payments to alleged Mexican “foreign officials.” O’Shea mounted a defense and proceeded to trial. In January 2012, following the DOJ’s case, Judge Lynn Hughes (S.D. Tex.) dismissed the FCPA charges against O’Shea. In doing so, Judge Hughes stated: ”The problem here is that the principal witness against Mr. O’Shea … knows almost nothing.” (See here). During the trial, Judge Hughes also admonished other aspects of the DOJ’s case stating: “I don’t know what was presented to the Grand Jury, but … the Government should have been prepared before they brought the charges to the Grand Jury. It’s something you have to prove. And you shouldn’t indict people on stuff you can’t prove.” (See here).

Lindsey Manufacturing et al

In 2010, the DOJ charged Lindsey Manufacturing Co. and two of its executives (company CEO Keith Lindsey and company CFO Steve Lee) with FCPA offenses for their alleged roles in a conspiracy to pay bribes to alleged Mexican “foreign officials.” In May 2011, Lindsey Manufacturing, Lindsey, and Lee were found guilty of various FCPA charges after a five-week jury trial. (See here).

However, after months of post-trial legal wrangling, Judge Howard Matz (C.D. Cal.) vacated the convictions and dismissed the indictment after finding numerous instances of prosecutorial misconduct. In the words of Judge Matz, the instances of misconduct were so varied and occurred over such a long time “that they add up to an unusual and extreme picture of a prosecution gone badly awry.” (See here).

In August 2011, Joel Esquenazi and Carlos Rodriguez were convicted by a jury of one count of conspiracy to violate the FCPA and wire fraud; seven counts of FCPA violations; one count of money laundering conspiracy; and 12 counts of money laundering in connection with an alleged bribery scheme involving Haiti Teleco officials. (See here).

In October 2011, Judge Jose Martinez (S.D. Fl.) sentenced Esquenazi to 15 years in prison and Rodriguez to 7 years in prison. (See here). Several stunning and strange developments (see here and here), among other things, resulted in the defendants appealing their convictions to the 11th Circuit. Among the issues presented on appeal is whether employees of alleged SOE’s are “foreign officials” under the FCPA. (See here for the post regarding the October 2013 oral arguments as well as links to the briefing).

Greens

In September 2009, husband and wife Gerald and Patricia Green were found guilty after a jury trial of conspiracy to violate the FCPA, substantive FCPA violations and other charges in connection with a bribery scheme involving a Thailand tourism official. (See here).

Notwithstanding the guilty verdict, in sentencing the Greens, Judge George Wu (C.D. Cal.) rejected the DOJ’s 10 year sentencing recommendation and sentenced the Greens to six monthsin prison, followed by three years probation (including six months of home confinement) (See here). As highlighted here, Judge Wu saw “shades of gray” in the conduct at issue and believed that the Greens helped make the the project at issue a success, performed the services it was engaged to perform in a professional manner, and increased revenue for the country of Thailand.

Bourke

The FCPA enforcement action against Fredric Bourke was arguably the most complex and convoluted case in the history of the FCPA. It involved an alleged bribery scheme by Bourke and others in connection with the privatization of the alleged state oil company of Azerbaijan. The action involved a nearly decade long investigation which spanned the globe, dismissal of FCPA substantive charges on statute of limitations grounds, reinstatement of the FCPA substantive charges, a superseding indictment which then dropped the FCPA substantive charges in exchange for conspiracy to violate the FCPA and other charges.

Following a six week jury trial, in July 2009 Bourke was found guilty of conspiracy to violate the FCPA and Travel Act and making false statement to the FBI. As highlighted here, in November 2009 Judge Shira Scheindin (S.D.N.Y.) sentenced Bourke to a year and a day in federal prison (followed by three years probation) and ordered him to pay $1 million fine. The DOJ sought a 10 year prison sentence.

Even though Judge Scheindin denied Bourke’s post-trial motions, it was notable that she stated at sentencing as follows. “After years of supervising this case, it’s still not entirely clear to me whether Mr. Bourke is a victim or a crook or a little bit of both.”

As highlighted here, in December 2011 the Second Circuit affirmed Bourke’s conviction. The Bourke appeal was principally based on knowledge issues which present narrow, factually unique issues. Nevertheless the Second Circuit’s holding on conscious avoidance was noteworthy in terms of FCPA jurisprudence. In short, the Second Circuit held that Bourke enabled himself to participate in a bribery scheme without acquiring actual knowledge of the specific conduct at issue and that such conscious avoidance, even if supported primarily by circumstantial evidence, is sufficient to warrant an FCPA-related charges.

[This post is part of a periodic series regarding "old" FCPA enforcement actions]

This post highlights related Foreign Corrupt Practices Act enforcement actions brought by the DOJ in the early 1990s concerning an alleged scheme to sell buses to the Saskatchewan, Canada Transportation Company (STC), an alleged instrumentality of the Canadian government.

The enforcement action was a bumpy road for the DOJ. Among other things, both the trial court and appellate court rebuked the DOJ’s position that the alleged “foreign officials” could be charged with conspiracy to violate the FCPA and both decisions contain an extensive review of the FCPA’s legislative history. As to the alleged bribe payors, two defendants put the DOJ to its burden of proof at trial and were acquitted.

*****

In March 1990, the DOJ charged George Morton in this criminal information with conspiracy to violate the FCPA’s anti-bribery provisions. Morton is described as a Canadian national agent who represented Texas-based Eagle Bus Manufacturing Inc. (a subsidiary of issuer Greyhound Lines, Inc.) in connection with the sale of buses in Canada. According to the information, Morton conspired with others in paying $50,000 to alleged Canadian “foreign officials” to obtain or retain business for Eagle Bus in violation of the FCPA.

The foreign officials were Darrell Lowry and Donald Castle, both Canadian nationals, and the Vice-President and President, respectively, of Saskatchewan Transportation Company (STC), an alleged instrumentality of the government of the Province of Saskatchewan.

The information specifically alleged that Morton requested “that Eagle pay money, in the sum of approximately two percent of the purchase price of 11 buses to be purchased by STC from Eagle, to officials of STC in order to ensure that Eagle received a contract for the sale of the buses.” The information also alleged that Morton and others “offered, promised and agreed to pay, and authorized the payment of money to officials of the government of the Province of Saskatchewan in order for Eagle to obtain and retain a contract to sell buses to STC.”

According to the information, Morton and his conspirators used “various methods to conceal the conspiracy in order to insure the continuing existence and success of the conspiracy, including but not limited to: preparing and using false invoices and other documentation; and arranging to have an STC check drawn payable to a corporation owned and controlled by Morton and converting the proceeds into Canadian currency.”

The information alleges, as to overt acts among other things, that Morton traveled from Canada to Texas “to discuss the payment of money to officials of STC in order to obtain and retain a contract to sell the 11 buses.”

In this plea agreement, Morton pleaded guilty and agreed to cooperate with the DOJ.

This “Factual Resume” in the Morton case suggests that the purchase price of the buses was approximately $2.77 million. It further suggests that Lowry told Morton “that a payment of Canadian $50,000 would be necessary in order for Eagle to ensure that the bus contract would be approved by STC’s Board of Directors” and that “Morton, whose compensation from Eagle was dependent upon the transaction being completed, agreed to attempt to obtain Eagle’s agreement to make the requested payment.” The Factual Resume further suggested that, while in Texas, “Morton met with Eagle’s President, John Blondek, and with Vernon Tull, a Vice-President of Eagle” and that “at the meeting, it was agreed that the requested payment would be made.”

A few days after Morton pleaded guilty, the DOJ filed this criminal indictment against Blondek and Tull (the Eagle executives) and Castle and Lowry (the alleged “foreign officials”).

The allegations were based on the same core conduct alleged in the Morton information and the indictment charged all defendants with conspiracy to violate the FCPA’s anti-bribery provisions. Original source media reports suggest that videotaped evidence existed in which Tull told an official at Greyhound (who helped the FBI arrange the videotaped exchange) that Lowry was accepting the money for “political purposes.”

Castle and Lowry moved to dismiss the charge against them on the basis that “as Canadian officials, they cannot be convicted of the offense charged against them.” In this June 1990 Memorandum Opinion and Order (741 F.Supp. 116), the trial court granted the motion. The issues, as framed by the court, were as follows.

“[It is undisputed] that Defendants Castle and Lowry could not be charged with violating the FCPA itself, since the Act does not criminalize the receipt of a bribe by a foreign official. The issue here is whether the government may prosecute Castle and Lowry under the general conspiracy statute, 18 USC 371, for conspiring to violate the FCPA. Put more simply, the question is whether foreign officials, whom the government concedes it cannot prosecute under the FCPA itself, may be prosecuted under the general conspiracy statute for conspiring to violate the Act.”

By analogizing to a prior Supreme Court [Gebardi v. U.S.] which addressed a similar issue, the court stated:

“Congress intended in both the FCPA [and the statute at issue in Gebardi] to deter and punish certain activities which necessarily involved the agreement of at least two people, but Congress chose in both statute to punish only one party to the agreement. In Gebardi the Supreme Court refused to disregard Congress’ intention to exempt one party by allowing the Executive to prosecute that party under the general conspiracy statute for precisely the same conduct. Congress made the same choice in drafting the FCPA, and by the same analysis, this Court may not allow the Executive to override the Congressional intent not to prosecute foreign officials for their participation in the prohibited acts.”

The court next reviewed the FCPA’s legislative history and concluded that “Congress had absolutely no intention of prosecuting the foreign officials involved, but was concerned solely with regulating the conduct of U.S. entities and citizens.”

In rejecting the DOJ’s position, the court stated, among other things as follows.

“… Congress knew it had the power to reach foreign officials in many cases, and yet declined to exercise that power. Congress’s awareness of the extent of its own power reveals the fallacy in the government’s position that only those classes of persons deemed by Congress to need protection are exempted from prosecution under the conspiracy statute. The question is not whether Congress could have included foreign officials within the Act’s proscriptions, but rather whether Congress intended to do so, or more specifically, whether Congress intended the general conspiracy statute, passed many years before the FCPA, to reach foreign officials.” (emphasis in original).

The court then stated:

“The drafters of the statute knew that they could, consistently with international law, reach foreign officials in certain circumstances. But they were equally well aware of, and actively considered, the “inherent jurisdictional, enforcement, and diplomatic difficulties” raised by the application of the bill to non-citizens of the United States. See H.R.Conf.Rep. No. 831, 95th Cong., 1st Sess. 14, reprinted in 1977 U.S. Cong. & Admin.News 4121, 4126. In the conference report, the conferees indicated that the bill would reach as far as possible, and listed all the persons or entities who could be prosecuted. The list includes virtually every person or entity involved, including foreign nationals who participated in the payment of the bribe when the U.S. courts had jurisdiction over them. Id. But foreign officials were not included.

It is important to remember that Congress intended that these persons would be covered by the Act itself, without resort to the conspiracy statute. Yet the very individuals whose participation was required in every case—the foreign officials accepting the bribe—were excluded from prosecution for the substantive offense. Given that Congress included virtually every possible person connected to the payments except foreign officials, it is only logical to conclude that Congress affirmatively chose to exempt this small class of persons from prosecution.

Most likely Congress made this choice because U.S. businesses were perceived to be the aggressors, and the efforts expended in resolving the diplomatic, jurisdictional, and enforcement difficulties that would arise upon the prosecution of foreign officials was not worth the minimal deterrent value of such prosecutions. Further minimizing the deterrent value of a U.S. prosecution was the fact that many foreign nations already prohibited the receipt of a bribe by an official. See S.Rep. No. 114 at 4, 1977 U.S. Cong. & Admin.News at 4104 (testimony of Treasury Secretary Blumenthal that in many nations such payments are illegal). In fact, whenever a nation permitted such payments, Congress allowed them as well.

Based upon the language of the statute and the legislative history, this Court finds in the FCPA what the Supreme Court in Gebardi found in the Mann Act: an affirmative legislative policy to leave unpunished a well-defined group of persons who were necessary parties to the acts constituting a violation of the substantive law. The Government has presented no reason why the prosecution of Defendants Castle and Lowry should go forward in the face of the congressional intent not to prosecute foreign officials. If anything, the facts of this case support Congress’ decision to forego such prosecutions since foreign nations could and should prosecute their own officials for accepting bribes. Under the revised statutes of Canada the receipt of bribes by officials is a crime, with a prison term not to exceed five years, see Criminal Code, R.S.C. c. C–46, s. 121 (pp. 81–84) (1985), and the Royal Canadian Mounted Police have been actively investigating the case, apparently even before any arrests by U.S. officials. Defendant Castle’s and Lowry’s Supplemental Memorandum In Support of Motion to Dismiss, filed May 14, 1990, at 10. In fact, the Canadian police have informed Defendant Castle’s counsel that charges will likely be brought against Defendants Castle and Lowry in Canada. Id. at 10 & nn. 3–4. Thus, prosecution and punishment will be accomplished by the government which most directly suffered the abuses allegedly perpetrated by its own officials, and there is no need to contravene Congress’ desire to avoid such prosecutions by the United States.

As in Gebardi, it would be absurd to take away with the earlier and more general conspiracy statute the exemption from prosecution granted to foreign officials by the later and more specific FCPA. Following the Supreme Court’s admonition in an analogous criminal case that “[a]ll laws are to be given a sensible construction; and a literal application of a statute, which would lead to absurd consequences, should be avoided whenever a reasonable application can be given to it, consistent with the legislative purpose,” [...] the Court declines to extend the reach of the FCPA through the application of the conspiracy statute.”

Accordingly, Defendants Castle and Lowry may not be prosecuted for conspiring to violate the Foreign Corrupt Practices Act, and the indictment against them is Dismissed.”

It is also interesting to note that the trial court observed as follows regarding the FCPA’s legislative history.

“The legislative history repeatedly cited the negative effects the revelations of such bribes had wrought upon friendly foreign governments and officials. [...] Yet the drafters acknowledged, and the final law reflects this, that some payments that would be unethical or even illegal within the United States might not be perceived similarly in foreign countries, and those payments should not be criminalized.”

The DOJ appealed the trial court’s dismissal of the conspiracy charge against Castle and Lowry. In this March 1991 5th Circuit opinion (925 F.2d 831) the court stated:

“We hold that foreign officials may not be prosecuted under 18 USC 371 for conspiring to violate the FCPA. The scope of our holding, as well as the rationale that undergirds it, is fully set out in [the trial court opinion] which we adopt and attach as an appendix hereto.”

In this July 1991 superseding indictment, the DOJ charged Blondek and Tull with conspiracy to violate the FCPA’s anti-bribery provisions, Blondek with two substantive FCPA anti-bribery violations and Tull with three substantive FCPA anti-bribery violations. In addition, the superseding indictment charged Blondek, Tull, Castle and Lowry with violating 18 USC 1952 (interstate and foreign travel or transportation in aid of racketeering enterprises – also known as the Travel Act).

In October 1991, the DOJ filed this Civil Complaint for Permanent Injunction against Eagle Bus based on the same core conduct. Without admitting or denying the allegations in the complaint, in this Consent and Undertaking Eagle Bus agreed to a Final Judgment of Permanent Injunction enjoining the company from future FCPA violations. Of note, the Consent and Undertaking states:

“[Eagle Bus] has cooperated completely with the Department of Justice in a criminal investigation arising from the circumstances described in the complaint [...] and will continue to cooperate. The DOJ has agreed that, in the event neither Eagle Bus, nor its parent corporation Greyhound Lines shall violate the FCPA during the period of the following three years, the DOJ will not object to the defendant’s subsequent motion to dissolve the permanent injunction.”

This February 1992 DOJ Motion for Downward Departure in Morton’s case states as follows.

“Morton cooperated with the United States in the investigation and indictment of defendants John Blondek, Donald Castle, Darrell Lowry and Vernon Tull. Blondek and Tull were tried and acquitted of all charges on October 12, 1991. Castle and Lowry have not been been apprehended and remain fugitives. Morton rendered substantial assistance to the United States in the preparation and prosecution of the case against Blondek and Tull. [...] Morton also appeared as a witness for the Crown in criminal proceedings in Regina, Saskatchewan, Canada, against Castle and Lowry. The United States is informed that Morton was of substantial assistance in that case. In the Canadian case, Castle was acquitted of all charges, while Lowry was convicted of all charges. Lowery has been sentenced to approximately 16 months incarceration.”

Morton was sentenced to three years probation.

According to docket entries, in April 1996, the DOJ moved to dismiss the charges against Castle and Lowry.

Other than a single sentence in the above mentioned DOJ motion for a downward departure in the Morton case, I was unable to find any public reporting or reference to the Blondek and Tull trial in which they were acquitted of all charges. There is no reference to the trial on the DOJ’s FCPA website and efforts to learn more about the trial from former DOJ enforcement attorneys or those representing Eagle Bus were either not fruitful or unsuccessful.

FCPA trials are rare. Thus if anyone has any information about the Blondek and Tull trial, please contact me at fcpaprofessor@gmail.com.

*****

One final note about the “buses for bribery” enforcement action. In an original source media article, George McLeod, the provincial cabinet minister responsible for STC, said “he has seen no information that Saskatchewan paid an inflated price for the luxury buses.” He is quoted as follows. ”I don’t think the product is on trial. As far as I’m aware, we received an excellent product for the price.”